- Video report by ITV News Washington Correspondent Robert Moore
Speaking at a joint press conference in the White House, Mr Trump's 80-page peace plan calls for two states with a Palestinian capital in east Jerusalem, but Jerusalem "will remain Israel's undivided capital."
He said the US will open an embassy in the new Palestinian capital and "if executed well" could lead to one million new jobs for Palestinians.
"All prior administrations from President Lyndon Johnson have tried and bitterly failed, but I was not elected to do small things or shy away from big problems," Mr Trump added.
The US president said it is a "win win opportunity" with a "realistic two-state solution."
However the plan does not have input from Palestinian leaders and Palestinians have already rejected the proposal.
They have accused Mr Trump of being biased in favour of Israel as he has adopted policies that bolster Israel at their expense.
Palestinian President Mahmoud Abbas said “a thousand no's” to the proposed peace plan.
The Palestinians remain committed to ending the Israeli occupation and establishing a state with its capital in east Jerusalem, Abbas said at a press conference in the West Bank city of Ramallah, where the Western-backed Palestinian Authority is headquartered.
“After the nonsense that we heard today we say a thousand no's to the Deal of The Century," he said.
The plan unveiled on Tuesday more than doubles the territory currently under Palestinian control, although it also recognises Israeli sovereignty over major settlement blocs in the West Bank, something to which the Palestinians will almost certainly object.
The political outlines does call for a four-year freeze in new Israeli settlement construction, during which time details of a comprehensive agreement would be negotiated, according to the officials who spoke on condition of anonymity ahead of Mr Trump’s announcement.
However, it was not immediately clear if the freeze could be extended if a final deal is not concluded in the four years.
The plan goes further in concessions to the Palestinians than many analysts had believed was likely.
However, it would require them to accept conditions they have been previously unwilling to consider, such as accepting West Bank settlements.
It builds on a 30-page economic plan for the West Bank and Gaza that was unveiled last June and which the Palestinians have also rejected.
Under the terms of the “peace vision” that Mr Trump’s son-in-law and senior adviser Jared Kushner has been working on for nearly three years, the future Palestinian state would consist of the West Bank and Gaza, connected by a combination of above-ground roads and tunnels, according to the officials.
The officials said that both Israeli prime minister Benjamin Netanyahu and his main political challenger in March elections, Benny Gantz, had signed off on the plan.
Mr Netanyahu was beside Mr Trump as he unveiled the plan at the White House.
The event cames as Mr Trump’s impeachment trial continues in the Senate and Israel’s parliament had planned a hearing to discuss Mr Netanyahu’s request for immunity from criminal corruption charges.
Mr Netanyahu withdrew that request hours before the proceedings were to begin, but Israel’s parliament, the Knesset, is still expected to meet.
The body had been likely to vote against immunity, dealing Mr Netanyahu a blow.
In the run-up to the March 2 election, Mr Netanyahu has called for annexing parts of the West Bank and imposing Israeli sovereignty on all its settlements there.
Israel captured the West Bank in the 1967 Mideast war, and the Jordan Valley in particular is considered a vital security asset.
Security responsibility for the Jordan Valley would remain in Israel’s hands for the foreseeable future but could be scaled back as the nascent Palestinian state builds its capacity, under the terms of the plan, which says that statehood will be contingent on the Palestinians meeting international governance criteria.
The officials said they expected negative responses from the Palestinians, as well as Turkey and Iran, but were hopeful that Jordan and Egypt, the only two Arab nations to have peace treaties with Israel, would not reject it outright.
The officials said they expected Gulf Arab states like Saudi Arabia, the United Arab Emirates and others to cautiously welcome the plan.
The reaction of Jordan, which would retain its responsibilities over Jerusalem’s al-Aqsa Mosque under the plan, will be particularly significant, according to the officials, who said Mr Kushner and others were reaching out to Arab leaders ahead of the rollout.
The Palestinians see the West Bank as the heartland of a future independent state and east Jerusalem as their capital.
Most of the international community supports their position, but Mr Trump has reversed decades of US foreign policy by siding more blatantly with Israel.
The centrepiece of his strategy was recognising Jerusalem as Israel’s capital and moving the American Embassy there.
The Palestinians refuse to even speak to Mr Trump and they are calling on support from Arab leaders.
The Palestinian leadership also has encouraged protests in the West Bank, raising fears that the announcement in Washington could spark a new round of violence.